<Outline> 
- ZF tapped the Chinese market in conjunction with VW's move into the industry. ZF has steadily expanded its operations in China since 1994, when it created its first joint venture company in Shanghai. In 2005, the Company greatly accelerated its business activities in the country by building new plants for its five operating segments, respectively; namely driveline systems, powertrain and suspension systems, chassis systems, rubber metal products, and steering systems. ZF also set up joint venture companies in partnership with Dongfeng Motor Group and the China National Heavy Duty Truck Group. Establishing these is expected to strengthen ZF's production structure in the area of commercial vehicle parts.

 <Highlights by Each Segment>

Driveline Systems : 

ZF Drivetech (Hangzhou) Co., Ltd.
- In June 2006, ZF Drivetech (Hangzhou) Co., Ltd. launched commercial production in the Xiaoshan Economic & Technological Development Zone, Sushan, Hangzhou, Zhejiang. The wholly owned subsidiary was established in November 2005 in order to assemble and sell transmission systems for heavy-duty commercial vehicles of 16 tons or more. 
- In 2006, the subsidiary began producing ZF Ecosplit Classic Line 16-speed transmission systems using knock-down kits.


ZF Transmission Shanghai Co., Ltd.
- In September 2006, ZF Transmission Shanghai Co., Ltd. officially became operational. The joint venture was established in 2004 between the ZF Group and Shanghai Automotive. The manufacturing equipment used in the new facility was transferred from the Group's transmission assembling lines in Saarbrucken, Germany. China's first 5-speed manual assembly system built at ZF Transmission Shanghai was delivered to and tested at Shanghai GM. ZF Transmission Shanghai will initially manufacture 50,000 sets of 5-speed transmissions annually. A new production line for 6-speed transmissions will soon be completed.

Powertrain and Suspension Products (ZF Sachs) :

ZF Sachs AG and Dongfeng Shock Absorber Co., Ltd.
- In June 2005, ZF Sachs AG and Dongfeng Shock Absorber Co., Ltd. jointly established ZF Dongfeng Shock Absorber Shiyan Co. Ltd. to manufacture shock absorbers for commercial vehicles made by Dongfeng and other automakers. With a total investment of 1.5 million euros, ZF has a 51 percent share, and Dongfeng Shock Absorber holds the remaining 49 percent of the joint enterprise. Annual production volume is expected to reach one million units by 2008. 

Chassis Products (ZF Lemforder) :

ZF Lemforder Shanghai Chassistech Co., Ltd.
- In May 2005, ZF Lemforder Shanghai Chassistech Co., Ltd. held a groundbreaking ceremony at its plant site in the Shanghai Fengpu Industrial Park. The new joint venture company established between ZF Lemforder (owning a 51 percent stake) and Shanghai Motor Vehicle & Auto Parts Co.,Ltd. (owning the remaining 49 percent stake) will manufacture chassis parts such as tie rods, suspension joints, and control arms. The planned amount of investment in this company is 20 million dollars. The facility is due to be completed in 2008, and is expected to generate annually sales of 800 billion yuan when it becomes operational.

ZF FAWER Chassis Technology Co. Ltd.
-  ZF FAWER Chassis Technology Co. Ltd. held a ceremony to celebrate the completion of its manufacturing facility in July 2005. ZF FAWER Chassis Technology was established in Changchun City in 2003; it was created jointly by ZF Lemforder Metalwaren AG and Fawer Automotive Parts Co., Ltd., which supplies a wide range of car parts under the FAW Group. The joint venture company focuses on the production of front and rear axle modules for passenger vehicles; suspension parts for commercial and passenger cars; and steering linkages and other chassis parts. Planned amount of annual production is 50,000 front and rear axle modules for passenger vehicles; 83,000 suspension links for commercial vehicles; and 82,000 steering linkages.
- In 2006, the subsidiary enjoyed strong sales of its front/rear axle modules used in the FAW-VW Audi A6L. Unit sales of these axle modules, which were launched in 2005, exceeded the targeted 45,000 sets.    

Rubber Metal Products (ZF Bode Elastmetall) :

Shanghai ZF Zhongding NVH Co.,Ltd.
- In May 2005,  ZF Boge Elastmetall and Anhui NingguoZhongding Co., Ltd. jointly established Shanghai ZF Zhongding NVH Co.,Ltd. to manufacture rubber-metal components to reduce noise and vibration in the chassis and driveline systems. Having registered capital of 80 million yuan, the new joint venture company is owned 51 percent by ZF Boge Elastmetal, 44 percent by Anhui NingguoZhongding Co., Ltd., and 5 percent by Shanghai Huizhong Economic Development Co., Ltd. Shanghai ZF Zhongding NVH has two production facilities:  one in the Qingpu Industrial Zone, Shanghai; and the another in Ningguo,Anhui Province.

Steering Systems (ZF Lenksysteme) : 

ZF Commercial Vehicle Steering (Shandong) Co., Ltd.
- ZF Commercial Vehicle Steering (Shandong) Co., Ltd., which is a joint venture company established between ZF Lenksysteme and China National Heavy Duty Truck Group in 2005, officially became operational in November 2006. The joint venture corporation manufactures mainly steering systems and related components for commercial vehicles in the Jinan Economic Development Zone. A total investment of 17.58 million dollars is planned for the first phase of the plant construction. Establishing this company is expected to help the Jinan Economic Development Zone become the country's largest supply hub of steering systems in the next three to five years. 

- The Company 's R&D activities are mainly conducted at the Shanghai Technical Center, which was established in 2004. In order to strengthen its development capacity to support  the growing China market, the Company will increase its headcount at the facility which totaled 20, as of December 2006, to 70 by 2010.